Nvidia Q2 Earnings Preview: Gross Margin and Rubin Hold Key to Breakout After Four Straight Quarters of Post-Earnings Drops

In the previous quarter, Nvidia reported revenue of $81.615 billion, up 85% year-over-year; GAAP net income of $58.321 billion, up 211% year-over-year; and a GAAP gross margin of 74.9%. Under the new business breakdown, Data Center revenue reached $75.2 billion, up 92% year-over-year and 21% quarter-over-quarter; Edge Computing revenue reached $6.4 billion, up 29% year-over-year and 10% quarter-over-quarter.

For the second quarter, Nvidia provided a revenue forecast midpoint of $91 billion, plus or minus 2%, excluding expected Data Center revenue from the Chinese market; GAAP gross margin guidance was set at 74.9%, plus or minus 50 basis points. Morgan Stanley expects the company's second-quarter revenue to reach $91.1 billion and earnings per share of $2.07, roughly in line with the market consensus of $2.08.

The Blackwell product line remains the primary growth driver this quarter, as cloud vendors and enterprise clients maintain strong demand for computing power procurement. Asian supply chain research shows an increase in 4nm wafer starts for Blackwell, indicating that supply assumptions in current revenue models may be conservative; Citi believes Nvidia has secured HBM supply for 2026 and 2027. As memory bottlenecks ease, land, power, and data center shells (LPS) could become the new bottlenecks.

As the revenue base expands, market focus has shifted from "whether demand is growing" to "whether growth can be sustained." With the expansion of the networking and systems business, its share of revenue will also impact the blended gross margin, and the market needs to observe whether the non-GAAP gross margin can stabilize at around 75%.

Rising costs for DRAM, wafers, advanced packaging, and substrates may continue to put pressure on profit margins. Whether management maintains its fiscal 2027 gross margin guidance in the "mid-70%" range, along with its wording regarding cost changes during the earnings call, could impact the stock price more directly than the revenue figures themselves.

The Vera Rubin platform has entered mass production, with partners expected to supply products in the second half of 2026. Morgan Stanley projects Rubin shipments in the third quarter, with an initial volume of around 150,000 units, corresponding to roughly $9 billion in revenue. While testing partner King Yuan Electronics lowered its full-year financial guidance and deferred more AI-related revenue into the fourth quarter and 2027, Morgan Stanley believes this mainly reflects longer testing cycles rather than weakening end demand.

Meanwhile, the market is watching whether demand for Blackwell Ultra can be sustained to avoid a transition gap between product generations. Rubin's actual shipping cadence, customer feedback, and competitiveness relative to ASICs and AMD still require further data for validation.

Affected by export controls, Nvidia's revenue share from the Chinese market dropped to a single-digit percentage in the previous quarter. However, recent reports suggest that China has permitted ByteDance and Tencent to acquire approximately 10,000 H200 processors each in recent weeks, with other companies potentially approved for similar shipments. KeyBanc analysts believe that Chinese enterprises intend to purchase about 1.5 million H200 chips, representing potential revenue of roughly $30 billion. Nevertheless, because Nvidia has agreed to remit 25% of the related revenue to the U.S. government, its profit contribution warrants cautious assessment.

If management discloses substantial revenue from China or provides explicit shipment guidance, it could serve as a bullish catalyst exceeding current expectations; conversely, the growth contribution from non-China regional business remains a key metric for validating overall momentum.

Morgan Stanley stated that post-earnings stock price performance depends on gross margins, market share, and partnership models: if results beat expectations, guidance is raised, and demand for Rubin is confirmed, the stock could rise 5% to 10%; if structural issues remain unresolved, the stock price may fluctuate slightly; if revenue falls short of expectations or gross margin guidance is revised downward, the drop could exceed 10%, with the neutral scenario having the highest probability.

In this light, the real focus of Nvidia's second-quarter earnings report is not merely whether the company can deliver stellar results, but whether management can demonstrate that its high growth, profit margins, and next-generation product cycle remain sustainable.

This content was translated using AI and reviewed for clarity. It is for informational purposes only.